Yuen Kee Foods Seeks Hong Kong Listing: Concerns Over Franchise Dominance Behind 4,266 Outlets

ZC Asia has learnt that on 12 January, Yuanji Food Group Limited (hereinafter referred to as ‘Yuanji Food’) submitted its application for a Main Board listing to the Hong Kong Stock Exchange. This marks the second IPO application by the catering enterprise, which champions the ‘Yuanji Cloud Dumplings’ brand, following the termination of its A-share listing in September last year. Huatai International and GF Securities are acting as joint sponsors.

95% Franchise Outlets, 495 Closures Over Three Years

According to the prospectus, as of 30 September 2025, the company operated a total of 4,266 outlets globally, positioning it as the ‘world's largest Chinese fast-food enterprise’.

Yuanji Food's rapid expansion relies heavily on its franchise system. In the first nine months of 2025, franchised outlets numbered 4,247 out of 4,266 total stores – a staggering 95% – with only 19 company-owned outlets.

This model has accelerated network expansion but also made the company's revenue highly dependent on ingredient sales to franchisees. From 2023 to September 2025, over 95% of the company's revenue originated from its store network, meaning business stability is deeply intertwined with franchisees' operational performance.

While the franchise model delivers scale, it also presents management challenges. The prospectus reveals that between 2023 and September 2025, the company closed a cumulative total of 495 franchise outlets. Improper conduct by individual franchisees regarding food safety and service standards may pose risks to the brand's reputation.

Steady Revenue Growth with Significant Profit Recovery in First Nine Months of 2025

Financial data indicates the company achieved operating revenues of RMB 2.026 billion and RMB 2.561 billion in 2023 and 2024 respectively. In the first nine months of 2025, the company achieved revenue of RMB 1.982 billion, representing an 11% increase compared to RMB 1.786 billion during the same period in 2024.

Regarding profitability, the company's net profit for 2024 stood at RMB 142 million, a decline from RMB 167 million in 2023. However, in the first nine months of 2025, the company's adjusted net profit reached RMB 192 million, representing a 31% year-on-year increase and demonstrating a significant recovery trend.

Gross profit margin was markedly affected by fluctuations in raw material prices. From 2023 to 2024, the gross profit margin decreased from 25.9% to 23.0%, before slightly recovering to 24.7% in the first nine months of 2025, exhibiting an overall fluctuating trend. This primarily stemmed from fluctuations in key raw materials such as pork, with material costs consistently accounting for over 85% of cost of sales during the same period.

Regarding expenses, the company's sales and marketing expenditure increased by 63.7% year-on-year in 2024, while administrative expenses also rose. These growth rates exceeded the concurrent revenue growth, exerting pressure on profit margins.

Tier-1 cities remain the mainstay, with product portfolio still relatively concentrated

As of September 2025, stores in tier-1 cities accounted for 51.0% of the total, down from 58.1% in 2023 but still representing the core market. The share in tier-2 cities remained stable at around 22%, while that in tier-3 and below cities rose to 26.6%.

Overseas operations remain in an exploratory phase. As of September 2025, the company operated only a handful of overseas outlets (five in Singapore at that time), with overseas GMV accounting for less than 4% of total GMV in the first nine months of 2025. Market expansion abroad faces uncertainties regarding localised operations and regulatory compliance.

Product portfolio-wise, dumplings and wontons accounted for over 80% of store GMV, indicating significant reliance on core categories. The retail brand ‘Yuen Kee Delights’ remains a minor contributor (2.6% in the first nine months of 2025), with limited diversification effects evident.

Potential Risks: Compliance and Supply Chain Challenges

Regarding labour practices, the company failed to fully comply with statutory obligations for social insurance and housing provident fund contributions during the historical record period, exposing it to risks of back payments and potential penalties.

Among the 49 leased properties, 12 lack complete title deeds or subletting authorisation, while 28 have not undergone lease registration.

Regarding supply chain, the company exhibits significant reliance on key suppliers. Although the procurement share from the top five suppliers decreased from 42.5% to 30.9% between 2023 and September 2025, concentration remains high. As outlets expand into broader regions, the coverage and stability of cold-chain logistics will face increased scrutiny.

According to the prospectus, net proceeds from this listing will primarily fund digital and intelligent infrastructure development, overseas market expansion, supply chain upgrades, and brand research and development.

The Chinese fast-food market, where the company operates, is substantial, reaching approximately RMB 809.7 billion in 2024. Amidst waves of chain standardisation and industrialisation, the sector faces intense competition, with franchising serving as a prevalent expansion strategy. Balancing growth velocity with management quality to achieve sustainable profitability remains a shared challenge for market participants.

Disclaimer: The content herein is for reference only and does not constitute any form of investment advice. Should any information contained herein prove inaccurate, incomplete, or potentially misleading, please refer to the company's official announcements. Market risks exist; investment requires caution.